Friday, May 13, 2005

Montana economics and taxes

Left in the West has a comment about the tax rates and their impact on the state of Montana's economy. Unfortunately, the article that he is basing his argument on is too short on any examination of all of the variables that are included, if they are considered at all.
Montana is the 4th largest state, and 44th in population. We suffer from a lack of efficient infrastructure to promote the sales, distribution and customer base to attract bsuinesses to serve us. For instance, Missoula County is approximately equal to the greater NY City area in geography, but we have only 70,000 people compared to nearly 10 million for NYC. The cost of providing goods and services to the NYC market as a per capita basis is dramatically less than to provide the same articles to say Condon.
The reason that this is important, is that in his comment, Left says that a lowered tax rate does not influence prosperity. I take issue with his conclusion, because I do not believe that governments actually create wealth, they only consume it. For instance, during the last election, Bush was chided for having a net loss of jobs during his tenure. Never mind that the bubble economy of the 90's was based on fraudulent accounting practices, or that the 9-11 attacks knocked about a trillion dollars out of the economy. But presidents do not dreate jobs unless they expand the employment of government agencies. Even then, the net effect is to reduce jobs, because it takes taxes to pay for the new government employees, and the taxes can only come from the citizens who pay those taxes. Take everyone in the state of Montana and make them government employees. you will have 100% employment rates, but no one to pay their salaries. It is only from the business side that wealth is created, which creates the opportunity to make money to pay taxes.
The role of governemnt in the creation of wealth is to reduce the hindrances to making money to make jobs, to pay people, etc. In the 19th Century, Congress awarded every other section of land along railroad right of ways to get the railroads to push the tracks throughout the country. With the use of widespread rails, shipping goods here and there resulted in reduced cost, creating a broader array of choices for the customer at lower cost. the same scenario was repeated in the 1950s with the introduction of the Interstate highways.
If you look at a successful individual tax rate, especially in this state, you would be amazed at the amount that governments at all levels consume. Take someone at the highest tax rate for the feds, which if memory serves me right is at 37%. Add 11% for state tax, and then throw in property taxes, gas taxes, telephone tax, airline tax etc., not to mention the social security "contribution." It quickly adds up that more than half of what you earn is going to be going for taxes. Why bother to work, if for every dollar that you earn you have to pay 60 cents?
In fact, one my more amusing moments is whent the Democrats rail against tax cuts for the rich. Let's see, they pay the highest rates, so we should not give them a tax break? Let's just give it to the poor and working claases. If you do, the net result will be that a family of four can go out to a McDonalds one day more a week than before. This will certainly stimulate McDonald's sales, and result in the hiring of more McD's employees.
But if you give a tax cut to the wealthy, what do they do with it? So long as they don't put it into a mattress, it will create more and better jobs. Suppose that the wealthy recipient of a tax cut decides to build a house. They hire contractors who employ workers of differing skills and pay them a lot of money. More than a McD's employee would get. This can be repeated at every opportunity that the wealthy purchase something of high value. But it goes farther. A McD's is constrained by only creating burgers. A contractor may decide to branch out and develop indoor pools, or something, enhancing the wealth creation aspect of the work, creating more highly paid workers.
Wealth creation is not a zero sum game. It is actually very dynamic with successes and failures. Tax rates that are confiscatory destroy wealth and wealth creation. We need to realize, that while taxes are the price we pay to live in a civilized society, we are not getting our money's worth out of the price.

Update

Dave and Matt are continuing the discussion about the effects of taxation and governments. After reading their excellent posts, it seems to me that the issue is being portrayed as a moral one: Either government is inherently good, or inherently evil. I believe that governemnt is really an inherent necessary evil.
But I think that Matt is incorrect in saying that the growht in the 90's was due to government intervention. He may have been quick to quip, and I must confess that I was just as bad. For instance, say that the government is going to construct a bridge. You can measure the costs that the government expends in creating the bridge, but it is difficult to measure the value to society in the improvement in access and transportation. Yet there is usually a real benefit to building a bridge.
I am a modified Libertarian, in that I understand that the government is not going to go away, and will continue to consume my taxes. However, on the other side, there does not seem to be an evaluation of what the appropriate role of the government is. As an example, say that your primary concern is providing shelter for the homeless. A worthwhile goal. Why doesn't anyone ask that the money given to the National Endowment for the Arts isn't applied to the problem? Do the homeless really need art galleries?
I know that this will be perceived as censorship, because any limitation on giving a crappy artist money to produce crap is always decried as censorship. Maybe, what we need to do is to reevaluate what is necessary, what is nice, and what we can afford.
Sure there will always be disagreement with these categories, but that is why we elect legislators to decide this.

2 comments:

Rocky Smith said...

Are you saying that a roof over a homeless person's head should have priority over funding a crucifix in a glass of urine or a portrait of the virgin Mary made of dung?

Jonathon Ploss said...

There are a few books on the subject, some very